This article discusses the basics of Minnesota foreclosures. This is part one of a series on Minnesota foreclosures:
- Minnesota Foreclosure Law: Foreclosure Basics
- Minnesota Foreclosure Law: Foreclosure by Advertisement
- Minnesota Foreclosure Law: Foreclosure by Action
- Minnesota Foreclosure Law: Deficiency Judgments
- Minnesota Foreclosure Law: Foreclosure of a 2nd Mortgage
Let’s start by explaining what a foreclosure is. Once you default on a mortgage (don’t pay your mortgage bill), a bank may foreclose on the mortgage. A foreclosure is the process of a bank (mortgagee) having the sheriff sell your property at a sheriff’s sale (foreclosure sale).
At a foreclosure sale, the bank will usually bid on your home at least the amount that you owe on the mortgage, because the money paid to the sheriff will be used to pay back the mortgage; in this situation, the bank is a buyer and the seller, so the bank gets its money right back (after the sheriff gets his fees). Often, the sheriff won’t even require the bank to bring the money because the sheriff knows the bank is the buyer and the seller. If someone else bids on your home at a sheriff’s sale, they will have to make arrangements for immediate payment of the purchase price.
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Foreclosure on Your Minnesota Home
If you own a Minnesota home that is facing foreclosure, you may be wondering about the consequences to you and your legal options.
A foreclosure on your home will be reported to the credit bureaus and affect your credit rating. You will likely be liable for the amount of the mortgage that is unpaid after the foreclosure sale (deficiency amount) if the foreclosure is by action (lawsuit) rather than by advertisement. You will normally not be liable for the deficiency amount if the foreclosure is by advertisement rather than by action.
Who decides whether it will be an Action or Advertisement foreclosure?
Whether the foreclosure is by Action or by Advertisement is decided by the bank. The bank’s decision is usually based on your financial viability and whether the bank believes it is worth spending additional money to sue you and go after your assets, instead of doing a Foreclosure by Action. That is, the bank must decide whether a Foreclosure by Action and a subsequent judgment against you is worth the cost of a lawsuit (legal fees, etc.).
When do you find out whether foreclosure is by Advertisement or by Action?
After you have missed some payments and your loan is in default, the bank will begin the foreclosure process. This process involves gathering documentation, sending it to a law firm, and the attorneys starting the legal foreclosure process. In a Foreclosure by Advertisement, the lawyers send notice to the homeowner and publish the foreclosure in the local legal newspaper. In a Foreclosure by Action, the lawyers sue the homeowner. Thus, the homeowner won’t know whether the foreclosure is by Advertisement or Action until the homeowner receives either a notice (Foreclosure by Advertisement) or summons and complaint (Foreclosure by Action).
What are other differences between Foreclosure by Advertisement and Foreclosure by Action?
There are other differences between Foreclosure by Advertisement and Foreclosure by Action. The most notable difference is that a deficiency judgment is not available in Foreclosure by Advertisement but a deficiency judgment is available in Foreclosure by Action. Learn more here:
Of course, there are important exceptions to these rules, and due to their complexity, you should consult with a Minnesota real estate attorney before assuming that these general rules apply to your situation.
You should also know that if your home sold by foreclosure, you can buy your home back during the six-month redemption period for the price that the home sold for. Sometimes, the home will sell for far less than the mortgage, which means you might be able to buy it back at an incredible deal if you can borrow money from friends or family.
On a related note, here is a news story from MPR News from December 12, 2010, about people buying back their homes after the bank pays a low price at the sheriff’s sale: Some Foreclosed Homeowners in Minnesota are Buying Back Their Homes at Great Prices.
Buying Foreclosed Homes in Minnesota
You may have heard about people getting great deals buying a foreclosed property. While you might still find good deals, you should be aware that there are substantial risks involved, and you are competing with sophisticated home buyers who work for the mortgage companies, and they have substantial resources at their fingertips including professional appraisers, actuaries, and years of experience in the industry.
If you are considering buying a foreclosed home in Minnesota, you should be thoroughly apprised of the risks by understanding what other mortgages may be on the property, the redemption period of the prior owner, and other encumbrances and liens that could affect marketable title. One important lean that could be on the property is a tax lien.
Additional Minnesota Foreclosure Resources
Learn more about Minnesota Foreclosures:
- Minnesota Foreclosure Law
- Foreclosure by Advertisement
- Foreclosure by Action
- Deficiency Judgments
- Foreclosure of a 2nd Mortgage
If you are facing a foreclosure in Minnesota, contact a Minnesota real estate attorney to understand your legal rights, risks, and options.